(MENAFN- AFP) As Australia approaches a sharp fall-off in resources investment later this year, the question dominating the outlook for the mining-dependent economy is where growth will come from next.
The search for the next growth cycle became more urgent following the recent corporate earnings season, where dividend payments reportedly reached a record US$63.3 billion, cost-cutting was a key theme and companies remained cautious about investing.
"What we are seeing in reporting season in our view is rational for companies - and that is to save," Credit Suisse strategist Damien Boey told AFP.
"It's not the ideal outcome for the economy and it could well also be another factor which entrenches the slowdown in Australia."
Slowdowns and recessions are a distant memory for Australians.
The country, boosted by its largest trading partner China's hunger for resources, has enjoyed a mining investment boom which has helped it avoid recession for more than two decades.
But as that boom draws to a close and the economy transitions away from resources-led expansion, signs that non-resources sectors will fill the gap are mixed.
While the housing sector has flourished as interest rates remain at a record low of 2.5 percent - with property prices in cities such as Sydney now among the most unaffordable in the world - spending has been weak in other areas.
The Australian government is determined to narrow the budget deficit by cutting welfare and spending, while consumers continue to favour paying down their debt to splashing out in shops.
At the same time, the local dollar remains strong against its US counterpart despite plunging commodity prices, hurting exports-oriented and import-competing businesses.
Quentin Grafton, the former head of Australia's Bureau of Resources and Energy Economics, said the country faced a challenging time, exacerbated by concerns of property bubbles and over-investment in China.
"If I look at the numbers in China, they are worrying. There are definite concerns - it's a clear and present danger," Grafton told AFP.
Together with the other domestic economic concerns and a global economy still struggling to get back on its feet after the financial crisis, Grafton said it was a "situation of high risk".
"The Australian economy is fragile... and there are a lot of things that could go wrong. I'm not saying that they will, but they could go wrong and I don't think Australia is well prepared for that," he said.
- Australian firms to drive growth -
Reserve Bank governor Glenn Stevens has issued businesses a call to arms, urging them to plough their billions of dollars in cash holdings - which have remained elevated since the global financial crisis - into the local economy to drive growth.
"Many businesses are in a position to play their part in the growth dynamic over time," Stevens said in a speech last week.
"At some stage, the equity analysts, shareholders, fund managers, commentators and so on will want to be asking not 'where's your cost cutting or capital return plan', but 'where's your growth plan'."
But it is unlikely companies will immediately leap to increase spending for the good of the nation, particularly given their traditional preference to base their investment plans off a consumer-growth model, waiting for the government and consumers to leverage up before they join in.
"Companies aren't investing because they can't see the demand," UBS strategist David Cassidy told AFP.
"But without companies investing and employing more, you are not going to see the demand. So it's a bit chicken and egg."
Cassidy said the strength of the Australian dollar, a lack of certainty in government policy and structural reforms were also limiting business investment.
Despite the fears, Australia's economy continues to expand at close to trend growth.
Second-quarter GDP data last week showed annual growth of 3.1 percent - a figure many developed nations would be glad to have on their books.
Stevens has sounded a cautiously optimistic note about the economy, saying the first and second-quarter GDP readings together "suggest a picture of moderate growth".
"Looking ahead, ideally, the non-mining part of the economy would see a further pick-up to grow a bit above-trend for a while... we may not be quite there yet, but we are I think slowly building a foundation for better performance," he said.
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.